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Iraq: Chevron deal with Kurds makes waves

July 20, 2012 at 2:20 PM   |   Comments

BAGHDAD, July 20 (UPI) -- Chevron's oil exploration deal with Iraq's semiautonomous Kurdish enclave will doubtless incense Baghdad, which seeks to control all of Iraq's energy riches, and spur Kurdish aspirations of independence.

But these are only part of wider geostrategic shifts in the region that could impinge on Iraq's ambition to challenge Saudi Arabia as a global energy power.

Chevron's controversial move into Iraq will have major political ramifications with long-term consequences, such as encouraging breakaway sentiment in other regions, most importantly southern Shiite-dominated Basra province which has two-thirds of Iraq's oil reserves and is coveted by Tehran.

The deal involving Chevron Corp. will worsen Baghdad's already strained relations with the United States and Turkey, which has proposed an oil pipeline deal with the Kurdish enclave in northern Iraq that has the government of Prime Minister Nouri al-Maliki in fits.

Tension with Washington is inevitable since another U.S. oil giant, Exxon Mobil, defied Baghdad Oct. 18, 2011, by signing a groundbreaking exploration deal with the Kurdistan Regional Government in the Kurdish capital, Erbil.

That was a major coup for KRG. It already had some 40 production-sharing contracts with foreign oil companies despite pressure from Baghdad but these were mainly small companies and wildcatters.

Exxon Mobil, the world largest and most powerful oil company with immense clout in Washington and a major contract for developing the West Qurna Phase 1 mega-field in southern Iraq, was something else entirely.

And now California's Chevron, the second largest U.S. oil titan, has joined the fray by taking over two oil exploration zones in Kurdistan from Reliance Industries, an Indian conglomerate.

Chevron, which has no contractual ties to Baghdad, will hold an 80 percent stake of the Rovi and Sarta blocks, which cover 490 square miles. Austria's OMV takes the other 20 percent.

Together, Chevron and Exxon Mobil give Kurdistan immense potential to become an economically viable entity, which could form the core of an independent state that, in its most ambitious form, could embrace the Kurdish zones in Turkey, Iran and Syria.

That won't please Ankara or Tehran, which are battling their own Kurdish separatists.

But if the Damascus regime is toppled in Syria's civil war, that country could splinter with Syrian Kurds possibly seeking to join their region to an Iraq-based Kurdish entity.

It's not clear whether Chevron's move will encourage other oil majors to head for Iraqi Kurdistan, which sits on an estimated 45 billion barrels of oil and some 100 trilling cubic feet of natural gas.

Royal Dutch Shell and France's Total have reportedly been scoping out possible deals with Erbil, but have so far made no commitment in that direction.

There are incentives to do so.

The 15 production contracts Baghdad's Oil Ministry has signed with Exxon Mobil, Shell, Italy's Eni and other international companies since 2009 involves flat fees -- usually around $2 for every barrel produced -- that many other majors have refused to accept.

The Kurds offer riskier, but more lucrative, production-sharing contracts under which foreign companies get a good share in reserves and oil produced.

In June, Turkey announced it was importing crude oil from Iraqi Kurdistan, despite its problems with its own Kurds who have been waging a separatist war in southeastern Anatolia since 1984.

Admittedly, this is only of the order of a dozen road tankers a day taking oil northward to be refined in Turkey and returned to the KRG's zone as refined products.

But the plan is to build a 1 million-barrel-a-day pipeline from landlocked Iraqi Kurdistan to Turkey's Mediterranean coast for export, allowing the Kurds to totally bypass Iraq's state-run pipeline network to Turkey.

For Maliki, this is the thin edge of the wedge regarding an emergent Kurdish state, while on a more strategic level Iran and the United States vie for influence in Iraq.

For energy-less Turkey, the deals with the KRG are part of its strategy of dominating Iraq, with its stated oil reserves of 143.1 billion barrels of oil, plus as much as another 150 billion barrels in untapped fields, and becoming the region's paramount power.

That will increasingly pit Turkey and its regional ambitions against Iran, which is steadily tightening its grip on Shiite-majority Iraq under Maliki's Shiite-dominated government after the U.S. withdrawal.

Iraq's Kurds, and the oil companies they host, may find themselves caught in the crossfire.

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